Stress Testing in a Structural Model of Bank Behavior

Thomas Siemsen, Sigurd Galaasen, Pablo D'Erasmo, Alfonso Irarrazabal and P. Dean Corbae
Additional contact information
Alfonso Irarrazabal: BI Norwegian Business School

No 1315, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a structural banking model for microprudential stress testing. We model a single bank that optimally chooses portfolio allocation, dividend policy and exit, facing regulatory and technological constraints. In our calibrated model, the bank has an incentive to hold a buffer stock of capital even in excess of regulatory requirements to protect its charter value. We explore optimal behavior during severe macroeconomic stress. We employ bank’s endogenous exit choice as a novel metric for counterfactual stress outcomes. Finally, we discuss implications for current stress testing framework.

Date: 2016
New Economics Papers: this item is included in nep-ban and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_1315.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:1315

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().